Centre for Policy Development's Blog, page 92

Ben Eltham | Baby Steps on Health Reform

Subjecting the private health insurance rebate to a means test is a good start to more equitable – and cheaper – health policy but there's a way to go yet, writes Ben Eltham.

Subsidising private health insurance is a clumsy and wasteful way of spending money on health care. The Centre for Policy Development's Ian McAuley and John Menadue point out in a recent paper that while private health insurers received about $16 billion in premiums last financial year, they only paid out about $13.2 billion in health expenses. The remainder, nearly $3 billion, was simply skimmed off in the form of administration costs (including things that have nothing to do with health care provision, like advertising) and, of course, profits. (I should disclose here that I am a Fellow of the Centre for Policy Development).

Because of its big reach and centralised nature, Medicare has far lower costs as a competing system of health resource allocation. For instance, the sheer size of Medicare means it can effectively set the rates it is prepared to pay for most medical services — a fact perennially hated by doctors and specialists, who would of course prefer to compete in a market where they could use their own collegial advantages to negotiate increased fees. In contrast, highly privatised health systems see rapid cost inflation from health providers.

This is because health is quite unlike many areas of economics, as McAuley and Menadue write today. For instance, customers often have very little information when it comes to making health care consumption decision, but are nonetheless prepared to spend their life savings. The power of doctors to determine the spending of their patients means that over-servicing in many health systems is rife. As a result, health is one of those areas of human life where public provision is generally cheaper than private provision. You only have to look to the US for the key example.

Read the full article in New Matilda here

Want some more information on the health care debate? Read John Menadue and Ian McAuley's discussion paper Private health insurance: High in cost and low in equity

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Ian McAuley and John Menadue | Are Private Health Subsidies Worth It?

Is there some special reason the private health insurance industry is worthy of such robust government support? Ian McAuley and John Menadue on why it doesn't add up.

When an industry has become dependent on a subsidy, it uses every means to justify its continuation, exaggerating the consequences if it is withdrawn. Political parties join the bandwagon, and governments, whatever their ideology, feel compelled to go on providing subsidies.

We're not referring to Alcoa, Toyota or GMH. There is at least some media exposure of subsidies to the aluminium and car industries, and there is some questioning of manufacturing assistance in both the ALP and the Coalition.

Rather, it's the private health insurance industry, which, for all the sound and fury about the means-testing of the rebate for high income earners, has once again escaped any serious scrutiny of its economic contribution and its tax-funded support — support which costs $4 billion a year, even after the modest trimming associated with means testing.

Read the full article in New Matilda here

Want some more information on the health care debate? Read John Menadue and Ian McAuley's discussion paper Private health insurance: High in cost and low in equity

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Michael Janda | Experts size up effects of health rebate changes

As both sides of politics put forward their policy suggestions regarding the private health insurance rebate, little is actually being put on the table to provide Australians with an equitable health system. The Government is claiming it is a fundamental reform to boost equity, while the Opposition claim it will lead to an exodus from the private health system putting more pressure on public hospitals. Michael Janda calls on a host of experts as he explains that both sides are barking up the wrong tree if they genuinely want to see efficiency and equity in the health system.

Research by Mr McAuley and John Menadue published by the Centre for Policy Development reveals that Australians paid $16 billion into private health insurance funds and only got $13.2 billion back in benefits.

The balance went into administration, advertising and profit.

After factoring in tax, the report estimates that 16 per cent of premiums do not go back into healthcare provision, whereas Medicare's running costs amount to less than 6 per cent.

Mr McAuley says that is not a criticism of how the insurers are run but simply the nature of their business.

"That's not to say they're horribly inefficient or gauging the public, it's simply that's the nature of the system; they've got to compete for customers, they've got to make profits on their reserves, they've got to hold reserves, they have to maintain front offices and really they're adding no added value in health care," he said.

Read the full article in Yahoo! 7 Finance here

Want some more information on the health care debate? Read John Menadue and Ian McAuley's discussion paper Private health insurance: High in cost and low in equity

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FAQ Research | Coal Seam Gas – Behind the Seams

Coal Seam Gas – Behind the Seams, is an exciting and extremely necessary project, run by FAQ Research in conjunction with Crikey, examining all aspects of the Coal Seam Gas issue in the lead up to the Queensland state election on March 24.

Impacting directly on farmers, rural and regional communities and the environment, CSG exploration and extraction also raises big questions about the future of our state, of our nation, and of our planet. As with many such controversies, claims and counter-claims fly, and PR and political spin hides the truth.

The project will combine informational articles on scientific, social and political aspects of the impact of CSG on Queenslanders with real time discussions, and frequently updated social media content. They will also be reporting from the ground, and stimulating deliberative and interactive discussions. This cauldron of ideas will sit on FAQ Research's website and Crikey's dedicated blog, allowing users to test their point of view against expert knowledge.

FAQ Research need your support! Want to help contribute to an interactive and stimulating initiative? Donations can be made here

For more information on Coal Seam Gas – Behind the Seams, please visit the project's website here

Join FAQ Research on Facebook here and follow on Twitter here.

Ben Eltham | Is Bank Bashing Justified? Of Course It Is!

Do the banks really deserve all this public loathing? Actually, they do, says Ben Eltham in New Matilda – even if they are profit-making entities subject to market forces. "Australia's banks [are] a kind of public-private partnership where the profits are privatised and risks are socialised".

Are there any institutions more hated than banks? Right now, the answer is "no". Financial institutions, and banks in particular, have probably never enjoyed broad popular support. But at the moment they're more on the nose than ever. Not only have the big four raised their variable mortgage rates, despite the Reserve Bank holding the national reference rate steady, but ANZ has also announced it will retrench 1000 workers as part of a cost-cutting drive.

Predictably, the response by politicians and many in the community has been furious. Some financial commentators continue to maintain that the rate hikes and job cuts are driven by pressures on bank margins, owing to rising costs of funding but most in the general community see only huge institutions making massive profits.

So are banks merely responding to rising funding costs? Or are they greedy corporations arrogantly abusing their power and size?

It's a little of column A, a little column B. While there is no doubt that making money as a big bank is getting harder, the broad public anger at banks is justifiable. Australia's big four banks enjoy an implicit public guarantee from Australian taxpayers. By acting in the interests of their shareholders, they are abusing that privilege.

Read the full article from Ben Eltham in New Matilda here.

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Miriam Lyons | ABC The Drum, 13 Feb 2012

Hosted by Annabel Crabb, Miriam is joined on the panel by The Chaser's Julian Morrow, and former liberal advisor Richard Muller. The hot topics for debate include the private health insurance rebate, continued bank job cuts and interest rate rises, as well as a chat to CPD Fellow, David McKnight, about his upcoming book launch 'Rupert Murdoch: An Investigation of Political Power'.

Watch the full episode on ABC's The Drum here

Michael Mullins | Means Test Won't Fix Health Funding

There is little doubt that by introducing means testing for the private health insurance rebate, it will result in a small step toward social inclusion in the health care debate. However, this small step is not enough.

Quoting CPD's John Menadue and Ian McAuley from their recent discussion paper Private health insurance: High in cost and low in equity, Michael Mullins, editor of Eureka Street, states that the proposed legislation will not do much to change inequities in the health system as a whole.

"The question of private versus public health insurance is related to the division of the hospital system between public and private hospitals. It has promoted inequity by subsidising, and encouraging queue-jumping by, those who can pay. The poor have only the increasingly dysfunctional public hospitals, while the wealthy can pick and choose."

Read the full article in Eureka Street here.

Want some more information on the health care debate? Read John Menadue and Ian McAuley's discussion paper Private health insurance: High in cost and low in equity

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Mike Steketee | Health Rebate A Very Unfair Plan

The heavy subsidies dished out to private health insurance has increased the equity gap between those who can afford it, and those who can't. The Howard Government's goal of an increase in numbers in private health to ease the pressure on public hospitals has proved otherwise, with not only business going to private hospitals, but with them the professionals too. One of the starkest inequities is found in dental care. Apart from the most exceptional cases, dental care is not covered by Medicare, but is included in many health fund policies. The result is taxpayers who cannot afford private insurance or a trip to the dentist are helping pay the dental bills of those much better off.

Mike Steketee in The Australian writes:

"When the Howard government introduced the 30 per cent rebate for private health insurance in 1998, Labor's health spokeswoman Jenny Macklin called it 'the worst example of public policy ever seen in this parliament'.

While making allowance for hyperbole, she was right, not that she, or anyone else on the Labor side in Canberra, would dare say it now. The problem was that it was popular. We all like money for nothing, or the illusion of it.

The truth is the rebate costs us a packet as taxpayers and is one of the most unfair government subsidies ever devised. Its cost has risen from an annual $1.5 billion to an estimated $4.7bn this financial year."

Read the full article in The Australian here

Read CPD's John Menadue and Ian McAuley's discussion paper Private Health Insurance: High in cost and low in equity

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Ross Gittins | Why health cover needs no subsidies

There are few remaining points of ideological difference between the two major parties. When it comes to the funding of healthcare, particularly private health insurance, Ross Gittins can't see too great a difference.

Gittins picks up CPD's recent discussion paper and he writes in The Sydney Morning Herald and The Age:

So, just as the Libs now accept the legitimacy of Medicare, so Labor now accepts the legitimacy of taxpayer-subsidised and enforced private health insurance. One of the few remaining ideological gaps has greatly narrowed.

The pity is that, as John Menadue and Ian McAuley explain in a new paper published by the Centre for Policy Development, subsidising private health insurance doesn't only advantage the better-off (including yours truly), it makes healthcare more expensive than it needs to be.

Healthcare costs to the community – whether funded by the taxpayer or privately – are already growing rapidly and are set to keep outpacing most other costs, becoming by far the greatest pressure on government budgets.

That makes healthcare the greatest source of pressure for rising taxes. Nothing wrong with that – provided we get value for money. But that's just where private insurance lets us down.

Howard's subsidy of health fund premiums was really a vote-buying election promise and a gift to the well-insured Liberal heartland. He tried to justify it by claiming that getting more people into private insurance would relieve the pressure on public hospitals.

As all the experts predicted at the time, it didn't work. It shifted patients from public to private, but it also shifted doctors from public to private, leaving public queues little changed. It did, however, subsidise the better-off in their efforts to jump the queue.

As anyone who's done high school economics could tell you, the benefit from a government subsidy of the price of something is shared between the buyer and the seller. The health funds have become a lot more profitable than they used to be.

All arrangements that separate the true cost of something from what you appear to pay for it at the counter encourage overconsumption, overservicing and overcharging. That's true of Medicare as well as private insurance.

But unlike private insurance, Medicare has countervailing advantages. Being a single national payer, it has lower administrative costs and, more to the point, greater ability to counter the market power of healthcare providers.

Our many private health funds have little ability – and little incentive – to counter overservicing and overcharging. It's a well established principle in health economics that those countries with the greatest reliance on private insurance to finance healthcare have the most expensive healthcare – without a commensurate improvement in their health. The United States is the classic case.

Using carrots and sticks to prop up private insurance not only subsidises a two-class health system, it delivers its greatest benefit to the incomes of medical specialists. Great idea.

Read the full article here.Download the new CPD discussion paper 'Private Health Insurance: High in cost and low in equity'

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Ben Eltham | How The Economy Became This Year's Battleground

Both major parties say the economy is their top priority. That sounds great – but will it work? Can either party really explain their policies to the electorate, asks Ben Eltham in New Matilda.

Ben writes:

For Labor, the economy remains the Government's potential strong suit: one the few areas of public policy where voters grudgingly admit it is doing a decent job. Labor's efforts to see the country through the worst of the GFC with only one quarter of negative growth may not win it too many plaudits in the community — Labor in fact still trails the Opposition in poll figures on questions about which party is best at managing the economy — but compared to the unpopularity of issues such as asylum seekers and the carbon tax, the Government at least sees the economy as favourable territory in which to manoeuvre.

For the Coalition, the economy is similarly conducive terrain. The last recession in this country was under Paul Keating in the early 1990s. Since then the country has enjoyed a long boom that coincided with most of John Howard's reign. We can never be sure exactly why, but perhaps this is the reason the conservative parties enjoy a natural advantage with voters, who seem automatically prepared to believe that the Liberal Party in particular is a better manager of the economy that spendthrift Labor.

Labor has been dealt a rather more tricky hand of cards than the Coalition thanks to external economic events. Sure, the Coalition navigated the Asian financial crisis of 1998 and the bursting of the dotcom bubble in 2011, but neither can really compare to the worst economic downturn in the northern hemisphere since the 1930s. That's what confronted Labor in September 2008, only 10 months after John Howard was thrown out of office. The turbulent and unsettling years following 2008 have seemed very different to the sunny years of the mid-2000s.

The actions that the Rudd government took in response to the GFC in late 2008 and early 2009 form the backdrop to the current economic debate. Simply put, that response was a triumph of pragmatic economic policy-making. Australia went hard and early with fiscal stimulus accompanied by a big drop in interest rates. This pumped money into the economy at a time when consumers could have been frightened into putting away their credit cards. It also helped strugglers in the mortgage belt with a windfall reduction in their fortnightly mortgage repayments. Despite some significant corporate failures from over-leveraged companies like Centro and Babcock and Brown, Australia didn't see a massive wave of corporate insolvency, and the fiscal stimulus took up the slack of falling private investment. As a result, unlike most of the western world, Australian aggregate demand therefore held up, and the country stayed out of recession.

Read more from Ben Eltham in New Matilda here.

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